Pursuant to Québec’s Money-Services Businesses Act (the “Act”), businesses that provide money services for remuneration, which includes the operation of an automated teller machine (“ATM”), must hold a licence issued by the Autorité des marchésfinanciers (the “AMF”). On February 12, 2015, the AMF announced that it had amended the Policy Statement to the Act to bring virtual currency ATMs (such as Bitcoin ATMs) and virtual currency trading platforms within the purview of the Act. As a result, businesses that operate a virtual currency ATM or a virtual currency trading platform will now be required to obtain a licence from the AMF and comply with the provisions of the Act.
Money-Services Businesses Act
Under the Act, which came into force on April 1, 2012, any person who operates a money-services business for remuneration must comply with licensing, verification, reporting and other obligations under the Act. The Act lists various services which are considered to be “money services”. Included in that list is the operation of ATMs.
The Policy Statement to the Act explains that the operation of an ATM consists in “making available to the public a means of withdrawing cash funds from a machine without the intervention of a natural person.” The recent amendments to the Policy Statement have clarified that “making available to the public a means of purchasing, with cash, virtual money from an automated distributor, without the intervention of a natural person, also constitutes the operation of automated teller machines”. As a result, the operation of a virtual currency ATM or a virtual currency trading platform is an activity that now falls within the scope of the licensing and other requirements of the Act.
The sanctions for non-compliance with the Act and the Regulation under the Money-Services Businesses Act(the “Regulation”) can be severe. Certain transgressions, such as failing to provide information or documentation required under the Act, carry fines of up to $200,000. For second or subsequent offences, the minimum and maximum fines prescribed in the Act are doubled.
Finally, it is worth noting that businesses licensed to operate ATMs are exempt from the customer identity verification requirements provided for in sections 7 to 11 of the Regulation in respect of activities which fall under the “ATM” class of licence.
Risks Associated with Virtual Currency
In its announcement on February 12, the AMF also warned of certain risks associated with virtual currency. In particular, the AMF noted that it does not regulate virtual currencies, and that such currencies can present volatility and liquidity risks. It also warned that the AMF’s financial services compensation fund and its deposit insurance fund do not cover transactions involving virtual currency. Finally, the AMF pointed out that virtual currency can be a vehicle for Ponzi and other fraudulent schemes due to its anonymous nature.
Bitcoin ATMs in Canada and Québec
According to the website Coin ATM Radar (http://coinatmradar.com), which tracks the number and location of Bitcoin ATMs all over the world, there are currently 61 Bitcoin ATMs installed in Canada. Canada is second only to the United States, which leads the way with 120 Bitcoin ATMs. The United Kingdom is in third place with 21.
Québec has experienced a surge in the number of Bitcoin ATMs in the past year. In February of 2014, Québec’s first Bitcoin ATM was installed at the Bitcoin Embassy in Montreal. Just over a year later, the province now has 19 Bitcoin ATMs.
Federal Regulation of Virtual Currencies
Virtual currencies have also attracted the attention of the Canadian government. For instance, the 2014 Federal Budget made specific mention of the need to introduce anti-money laundering and anti-terrorist financing regulations for virtual currencies such as Bitcoin. Certain amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act have been proposed but are not yet in force. These amendments would, among other things, make certain persons that deal in virtual currencies subject to Part I of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which includes record keeping, identity verification, reporting and other requirements. The amendments would also prevent banks and other entities from opening or maintaining an account for, or having a correspondent banking relationship with, certain persons that deal in virtual currencies, unless those persons are registered with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Regulations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act which address virtual currencies have not yet been issued, but are eagerly awaited.